Friends Provident revealed underlying profit of just £16 million for 2007, down from £509 million in the previous year. But the 97 per cent plunge in profit is less important than the bigger picture surrounding the insurer.

Friends is six weeks into the implementation of a radical change in strategy, with plans to sell its European wealth management business Lombard, the financial adviser Pantheon Financial and a majority stake in F&C, the asset manger, and to focus on profitable group pension business rather than volume.

A new chief executive, former Standard Life UK boss Trevor Matthews, is due to arrive in August to steer the turnaround. But this could be rendered meaningless if JC Flowers, the US private equity firm, does table an offer for an insurer, as it has indicated.

Flowers first expressed interest in Friends last November and has since said that it was willing to pay 175p per share for the company. Sir Adrian Montague, Friends' chairman, wants to see a formal proposal from Flowers. Shares in Friends were 123.6p at 11.30am, up almost 4 per cent but still a long way from the 200p per share that Friends' shareholders hope to receive from Flowers.

Continued uncertainty about the private equity firm's plans is likely to eat away further at the stock price. With Sir Adrian expressing a reluctance to go for a put up or shut up order from the Takeover Panel, there seems to be little incentive for Flowers to rush in.

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